World Markets in Motion

US Industry Overview

Monday, October 29, 2007

No longer are the Prius and it's eco friendly associates the only fuel-efficient vehicles on America's streets and interstates. Long a major staple of European transportation, the compact diesel commuter is making inroads to a highway near you. Traditionally, diesels have been synonymous with large trunks and smelly, noisy Mercedes Benz. Unlike most stereotypes, this association has proven remarkably accurate. When fuel prices soared in the past, automobiles such as the Volkswagen Rabbit, and General Motors's(GM) Oldsmobile and ever iconic Cadillac models, were seen efficiently cruising commuters to and from their destinations. While these relics are now largely retired and or scraped, there is a new breed of quiet, super efficient, cleaner burning diesels emerging.

Volkswagen(VOW.DE), a trendsetter and respected innovator of diesel technology, has seen great success with its highly acclaimed Turbo Diesel Injected(TDI) engine. Originally appearing in 1989, within the Audi 100, this reliable and fuel-efficient engine recreated the idea of a diesel commuter car. Furthermore, it destroys the negative connotations and stereotypes associated with diesels of the past. I should note here, that I am writing from real world experience, as I personally own one of these cleaner burning TDIs.

Unfortunately, these stylish, spacious and fuel-efficient vehicles have been discontinued until 2008 due to tightening emission standards. Currently, only 45 states have approved the sale of these vehicles, but VW has announced that the TDI will return in 2008; freshly minted with improved emission and compliant with all 50 states’ requirements.

The Engine

The primary reason consumers have chosen diesels over the standard gasoline engine is due to superior fuel economy. Case in point, my 2006 TDI Jetta(manual) achieves 40 and 50 mpg compared to the 21 and 29 mpg attained by VW's 2.0L gasoline counterpart. This is achieved by two methods. First, the inherent British Thermal Unit(BTU) content of diesel is much greater than that of gasoline. Essentially, this means there is more energy content per unit measured. Secondly, diesel combust fuel in a much different manner. Unlike gasoline, diesel engines compress air within their cylinders. Once the point of maximum pressure is achieved, fuel is injected and instantly combusts with the highly compressed air. Since these engines are higher pressure systems, they must be built to endure the additional stress. This is the reason we are still privy to 30-year-old VW rabbits and seemingly paleolithic diesel Mercedes Benz.

Emissions

Like all hydrocarbon combustors, these contemporary diesels produce carbon dioxide and associated smog creating pollutants. However, due to the superior fuel economy inherent to these diesels, on a direct mile-to-mile comparison they emit much less carbon dioxide. If this is true, then why are existing diesels only permitted to be sold in 45 of the 50 states?

As diesel burns it creates particulate matter(PM) such as soot and aerosols as well as nitrogen oxides(NOx), which cause the formation of ozone and other fine particles. Due to stringent EPA emission regulations(PDF) from the 1980s, the tolerable level of these byproducts has greatly decrease and it set to decrease further again with 2007-2010 legislation. The dynamic however changes if diesel commuters use biodiesel in their engines. According to the National Renewable Energy Laboratory(PDF), use of B100(100% biodiesel) cuts NOx by 10% and PM by 48%. Furthermore, diesel engines and their superior fuel efficiency contribute fractionally to carbon dioxide, the major gas attributed to global warming.

The Industry

Unfortunately for General Motors(GM) and Ford(F), it appears as though the US automakers are once again behind the curve. According to CNN, neither Ford nor GM have plans to sell SUV or diesel passenger cars again in the US. The companies claim, the endeavor "wouldn't be cost-effective, because existing diesel cars sold in Europe aren't sold within the US and the current US market is too small for additional development." As for the rest of the industry, everyone from Honda, Volkswagen, Mercedes Benz to BMW are either selling or planning on selling diesel passenger cars and SUVs. Even the often-marginalized Korean auto firm Hyundai has plans to introduce an SUV to the US by 2010.

For GM this inability to adapt is all to reminiscent of its hybrid debacle. Since 2003, Toyota's(TM) Prius has set record year over year sales. At the same time, GM continued to endorse it's higher margin vehicles such as trucks and Hummers. Now, 7 years since the first Prius rolled off the lot, GM finally has its own hybrid lineup. Unfortunately for GM, their plans to introduce hybrids might be futile because while marketing my say 'hybrid', consumers may hear 'Prius'. GM's plan to avoid the diesel car market could prove to be yet another disappointing milestone in this manufacturer's withering legacy. We will have to wait to see if and when GM responds its competitors inevitable success within this new market. The moral of this story? Recognize a shifting paradigm before it drives over you.

Disclosure: The author has no position in any of the aforementioned companies.